Gastonia’s health insurance fund is hemorrhaging, and the Band Aid beginning this summer will likely involve higher costs for city employees.

“The health insurance issue is the most critical thing we’re facing,” said City Manager Ed Munn, during a City Council strategic planning session Saturday. “That fund is losing money. It lost money last year and it will lose money again this year.”

The annual workshop serves as a way for city leaders to talk at length about big-picture issues. And the gloom-and-doom insurance dilemma took center stage this time around, due to the rising cost of health care.

The city has 879 employees. It is now insuring a little more than 1,500 people, counting employees, retirees and dependants.

Employees do not have to pay monthly insurance premiums for their own coverage, but do pay for a spouse or children they choose to have covered.

Gastonia budgeted almost $6.4 million to pay for employee health insurance in the current fiscal year. But total expenses are expected to exceed $7 million, said Assistant City Manager Larry Wood.

City Council members have already set aside $500,000 from their reserve funds to pay for the excess costs, but that may not be enough by the time the fiscal year ends June 30, Wood said.

“We believe it’s going to take that $500,000, but in my opinion, that’s a conservative number,” he said. “It’s probably going to take a couple hundred thousand more than that.”

The problem is that more employees are reaching their insurance deductible limit – and so more quickly – than in the past, Wood said. After that, much of the medical costs falls to the city.

Cost cutting measures

A myriad of options exist for collectively reducing the city’s health insurance costs by about $1.1 million. Those includes approaches such as increasing deductibles and co-pays, requiring pre-authorization for certain diagnostic tests and scans, and decreasing the amount that the city contributes each year to each employee’s health savings account, or HSA.

Increasing deductibles from $1,500 for employees and $3,000 for dependents, to $1,750 for employees and $3,250 for dependents, would “save” the city $143,400, for example. Decreasing the HSA contribution, from $750 per person to $550 per person, would save the city $205,000.

“But that’s on the backs of our employees,” Wood said.

Few of the other solutions will be welcomed by the city’s workers either, he said.

“There aren’t any good answers,” he said. “It comes down to there being some things we can do to hopefully help contain health care costs, but as we all know, they historically have been rising and continue to rise.”

Fees and other impacts of the new national health care law are also having to be considered, Wood said.

Page 2 of 2 - Gastonia self-insures its employees, and Blue Cross Blue Shield is administering the plan as a contracted third-party.

The city followed a national trend three years ago by switching to the HSA plan from the more traditional preferred provider organization, or PPO, plan. The change angered many employees because it came with a substantial increase in deductibles, among other things.

The move saved the city money for the first year, dropping total insurance claims from eight million to about 4.6 million in 2011, said Finance Director Melody Usery. City Council members elected to use the windfall to provide one-time bonuses for their employees in 2012, since employees had gone several years without raises.

But as hesitancy lifted and employees learned how to navigate the plan and their health savings accounts to their benefit, claims increased, and the city’s costs went back up. Claims rose to more than 5.3 million in 2012, Usery said.

“(The year) 2011 was probably not a good year to gauge things by,” she said.

Incentivizing good health

To counteract the negatives of the new HSA plan, the city began offering a health clinic, where employees can see a nurse practitioner for $3 and receive basic medical care and prescriptions. That has been successful and helpful, said City Manager Ed Munn.

Michelle Trantham, a client manager for Blue Cross Blue Shield, said HSA plans have become more popular for municipal insurance providers aiming to cut costs. But high-cost claims are still driving expenses up due to health conditions such as diabetes, heart disease, hypertension and high cholesterol, she said.

Some cities, mimicking private employers, are putting pressure on employees to remain healthy by refusing to ensure them if they use tobacco products, or charging them a higher insurance rate, Trantham said.

A greater emphasis is being placed on employee wellness, which is something Gastonia has already begun doing with its own workers.

“The employees have to be more accountable,” said Trantham. “They’re what’s driving the costs up.”

City Council members made no decisions Saturday, but suggested more may need to be done to incentivize employees to lead healthier lifestyles. Councilman Dave Kirlin said it’s all about encouraging people to see the value of that, and getting it to sink in.

“We can do all we want to these numbers,” he said, before tapping on his head. “But it’s all about this right here.”

You can reach Michael Barrett at 704-869-1826 or on Twitter @GazetteMike.